My Theory On Predicting Long Term Range Breakout

Discussion in 'Forex' started by achilles28, Dec 12, 2005.

  1. The assumptions:

    1) Pair valuation (read: long term price action) is determined largely by fundamentals between a pair.

    2) When pair fundamentals are unchanged for a period (GDP, inflation, employment, political stability etc), pair valuation reaches equilibrium and 'rangy' trading ensues.

    The theory:

    1) A significant period of daily range trading should be accompanied by a concurrent period of relative 'equilbrium' between fundamentals

    2) Breakout from a significant period of daily range trading should occur shortly after pair fundamentals exhibit a significant divergance from 'baseline' fundamentals witnessed during the range bound period.

    The implication is that new fundamental relationships between the pair drive a new valuation of the currency.

    Fundamental-based traders than battle with an entrenched range-bound market mentality, with fundamentals eventuallly winning out and a new trend then forming.

    For myself, this theory could be applied to a type of 'fundamental' based filter that would engage after a period of
    1) daily rangy trading
    2) that corresponds with unchanged pair fundamentals

    When fundamentals begin diverging a range bound period, entries for a trend following system can be put on.

    I dont have the computing skills to test this yet. But in theory, the idea should hold.

    Any ideaS? Suggestions? Contributions?

    Does the market hold to this theory, in your experience?
  2. It would be nice if you could backtest this and get back to me?
  3. y did u erase ur post oddtradeR?
  4. Looks like you've found the holy grail, and as usual nobody would like to talk about it on ET. :D
  5. Im not sure its the holy grail.

    But it could be useful for indicating when a definite range bound market is occuring and when it will likely end.

    A possible good filter and/or entry trigger for one hell of a mean-reversion system is all ;)

    I guess thats what u refferring to - mean reversion possibilities.

    Seriously, what do u think of this idea/
  6. Perhaps you simply should start a journal. Bye.
  7. Thanks for the 'thoughtful' reply.
  8. Surprised nobody else has wanted to contribute.

    Come on guys!! Does it have value? can we make it betetR?
  9. Ideas are a dime a dozen. Implementing, testing, etc., are where the real work lies. You're asking someone else to do the real work and give you the results?
  10. No, Im not. Im asking for contributions to start with.

    Does the idea make sense, in your experience? Is the idea fundamentally sound, in theory?

    Thats why I ended the initial post with "what do you think"???

    Why is everything like pulling teeth around here?

    What does it cost you to comment on a theory?

    Thats all im looking for.
    #10     Dec 15, 2005